New index shows financial health of Puerto Rico towns

The Center for Integrity and Public Policy (CIPP), a nonprofit that promotes government transparency, open access to data, and greater citizen engagement, unveiled Thursday the Municipal Financial Health Index, a new tool to analyze and compare the financial health of Puerto Rico’s 78 municipalities.

Some of the key findings of the Index based on analysis of the municipalities’ audited financial statements, show that: 70 municipalities have negative net assets (unrestricted); 50 municipalities have a general fund deficit; 43 municipalities have an accumulated general fund deficit (for example, a negative general fund balance); 24 municipalities spend more than 15 percent of their budget on debt service; 40 municipalities receive more than 40 percent of their revenues from the central government; and the consolidated long-term debt of the municipalities exceeds $5 billion.

The Index comprises 13 indicators based on four factors, including liquidity, financial performance, debt, and the municipalities’ ability to sustain their operations with recurring revenues.

An in-depth analysis of the Index suggests that there is no correlation between financial health and a municipality’s size or the years that the mayor has been in office.

For the co-founder and vice-chair of the CIPP’s board of directors, Arnaldo Cruz, the development of this Index provides a valuable tool for the analysis of fiscal policy that each resident can easily understand and use.

“With this Index we are providing a new measurement tool that will allow residents to compare their municipality to the others on the island utilizing a series of standardized financial indicators,” said Cruz.

“Mayors can often arrive at their own conclusions about the financial health of their municipality, but now they can do it using the Index and its underlying indicators and data that is information that can be independently verified,” he said.

Municipalities with the lowest rankings — signifying the highest degree of fiscal distress — were Ponce, Maunabo and Yabucoa, all on the Commonwealth’s southern coast. While Maunabo and Yabucoa are relatively small, Ponce is Puerto Rico’s fourth largest municipality by population.

The Index will be updated every year with the data from the audited financial statements so that citizens will be able to evaluate trends from one year to the next, CIPP officials said.

“This initiative will allow for easy access in a single place of all of the information related to the financial health of the municipalities,” said Puerto Rico Comptroller Yesmín Valdivieso.

“Additionally, the fact that this is being done by a non-governmental organization without any special interests, except for promoting transparency and understanding to the numbers, makes this project a valuable accountability tool,” she added, of the tool that can be found online.

CPA Association President Zulmari Urrutia-Vélez said the CIPP’s initiative will contribute to better governance.